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Regional Economic Development
The document discusses the economic outlook for Asia and the Pacific region. It notes that near-term growth remains strong but faces significant downside risks from factors like tighter global financial conditions. In the medium-term, growth faces challenges from trends like population aging and slow productivity growth. The document recommends policies to reinforce growth, address risks, and boost productivity in order to deal with upcoming demographic changes.
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Regional Economic Development
- 1. 2017 Asia andPacific Regional Economic Outlook: Preparing for Choppy Seas Ranil Salgado International Monetary Fund Asia and Pacific Department May 15, 2017 Presentation at Business Council of Mongolia
- 2. Key messages androadmap 2 •The near-term outlook for the Asia-Pacific region remains robust—and globally the strongest. •While there are some upside risks to growth, the outlook, on balance, is clouded by significant downside risks. •Medium-term growth faces secular headwinds, including population aging and limited productivity convergence.
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- 4. The outlook forthe Asia-Pacific region remains robust—and globally the strongest 4 Growth Projections: Selected Asia (percent change from a year earlier) World Asia China Japan Korea India Singa. Mongolia Australia New Zealand ASEAN APD Small States 2016 3.1 5.3 6.7 1.0 2.8 6.8 2.0 1.0 2.5 4.0 4.8 3.4 2017 3.5 5.5 6.6 1.2 2.7 7.2 2.2 -0.2 3.1 3.1 4.9 3.4 Revision from Oct. 2016 0.1 0.1 0.4 0.7 -0.4 -0.4 0.0 -1.2 0.5 0.4 -0.1 0.1 2018 3.6 5.4 6.2 0.6 2.8 7.7 2.6 1.8 3.0 2.9 5.1 3.8 Revision from Oct. 2016 0.0 0.0 0.1 0.1 -0.2 0.0 -0.1 -1.6 0.1 0.3 -0.1 0.1 Source: IMF staff. Note: Figures for India are on a fiscal year basis.
- 5. 5 Pickup since mid-2016with positive momentum 46 47 48 49 50 51 52 2015M1 2015M5 2015M9 2016M1 2016M5 2016M9 2017M1 Asia PMI: Manufacturing Sources: World Economic Outlook Database; Haver Analytics; and IMF calculation. -80 -60 -40 -20 0 20 40 60 80 100 1/1/2016 4/1/2016 7/1/2016 10/1/2016 1/1/2017 Asia-Pacific EM United States Europe Economic Surprise Index Sources: Citigroup; Haver Analytics
- 6. 6 China and Japan: StrongNear-term Outlook 6 7 8 9 10 11 12 13 0 5 10 15 20 25 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1 China: Growth and 2017Q1 Outturn (In percent, year-over-year) Nominal growth services Real GDP growth (RHS) Nominal growth industry Nominal GDP growth Sources: CEIC; and IMF staff calculations. -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 BNP IMF 2017 April WEO Morgan Stanley IMF-JPN Team's Nowcast Note: the labels indicate the sources. Japan: Growth and 2017 Q1 Forecast (In quarter-over-quarter percent, seasonally adjusted annual rate)
- 7. Domestic demand isstrong, supported by robust private consumption 7 -4 -2 0 2 4 6 8 10 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Proj. 2018Proj. Consumption Investment Net exports Growth Asia: Contribution to Growth (Year-over-year; percentage points) Sources: : IMF World Economic Outlook database; and IMF staff calculations.
- 8. 8 -1 0 1 2 3 -2 0 2 4 6 HongKongSAR TaiwanPOC Japan Singapore China NewZealand Thailand Australia Korea Philippines India Indonesia Malaysia Latest 2016 (period averageestimate) Change from Jan 2016 in inflation expectations (right scale) Asia: Headline Inflation and Expectations (Year-over-year; percent) Sources: CEIC Data Company Ltd.; Consensus Economics; Haver Analytics; IMF, World Economic Outlook database; and IMF staff calculations. Note: For India, inflation expectations and the 2016 projection are based on a fiscal year basis. TaiwanProvinceof China Commodity price recovery has modestly pushed up headline inflation
- 9. 9 -25 -20 -15 -10 -5 0 5 10 15 20 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Japan Hong KongSAR Korea China India ASEAN Selected Asia: Retail Sales Volumes (Year-over-year change; percent) Sources: CEIC Data Company Ltd.; Haver Analytics; and IMF staff calculations. 1 ASEAN includes Indonesia, Malaysia, the Philippines, Singapore, and Thailand. 1 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 2005M1 2006M1 2007M1 2008M1 2009M1 2010M1 2011M1 2012M1 2013M1 2014M1 2015M1 2016M1 2017M1 Japan Korea ASEAN China Selected Asia: Exports Volume by Economies (Year-over-year growth of 3mma) Sources: CEIC Data Company Ltd.; Haver Analytics; and IMF staff calculations. Breadth and sustainability of the pickup still not clear
- 10. 10 Risks to theOutlook
- 11. The risks, onbalance, remain slanted to the downside 11 Near-term: •Upside Risks—Strong Momentum and Larger U.S. Policy Stimulus •Tighter global financial conditions, in light of balance sheets weaknesses •More inward-looking policies in major global economies •A bumpier-than-expected transition in China Medium-term: •Parts of Asia risk growing old before becoming rich •Productivity growth has slowed, with limited convergence
- 12. 12 Tighter-than-expected global financial conditionscould trigger capital flow volatility 0.0 0.5 1.0 1.5 2.0 2.5 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Federal funds rate Fed funds rate: market expectation (current) Fed funds rate: market expectation (prior to U.S. Elections) Federal funds rate: March 2017 FOMC median United States: Interest Rates Forecast horizon Source: Bloomberg L.P. Note: FOMC = Federal Open Market Committee.
- 13. 13 0 5 10 15 20 25 Indonesia Philippines India Korea Japan China TaiwanPOC Thailand Malaysia Australia NewZealand Singapore HongKongSAR 2014 2015 20162006-09 avg. TaiwanProvinceof China Sources: Dealogic; and IMF, World Economic Outlook database. Note: Includes both bond issuance and syndicated loan issuance. Data compiled on residency basis. Asia: Nonfinancial Corporate Sector Debt Issuance (Percent of GDP) -20 -10 0 10 20 30 US Spain Portugal Germany UK Austria India Japan New Zealand Netherlands Italy Indonesia France Singapore Belgium Hong Kong SAR Korea Australia Switzerland Canada Sweden China Norway Malaysia Thailand Selected Economies: Change in Household Debt to GDP Ratio (Percentage points; from end-2007 to end-2015) Sources: Bank of International Settlement, and IMF staff calculations. Household and corporate leverage are high
- 14. 14 Trade exposures tomajor trading partners 0 2 4 6 8 10 12 Korea China Japan Indonesia India Australia Foreign value added Domestic value added Sources: WIOT, IMF; and IMF staff calculations United States 0 2 4 6 8 10 12 Korea China India Indonesia Japan Australia European Union 0 2 4 6 8 10 12 Korea Australia Japan Indonesia India China Exports and Value added to United States, European Union, and China (In percent of National GDP, 2014)
- 15. 15 Asian EMEs appearrelatively better positioned to deal with external shocks FX reserve coverage External financing requirement FX share in public debt FX share in NFC debt Bank capital adequacy NFC interest coverage Selected Vulnerability Indicators Asia EM Average EM Average excluding Asia 1 1 1 Sources: IMF, Vulnerability Exercise database; and IMF staff calculations. 1 Inverted axis with the maxium axis value at the center and the minimum at the periphery.
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- 17. 17 Asia is agingfast
- 18. 18 Asia faces therisk of growing old before becoming rich
- 19. 19 0 10 20 30 40 50 60 70 80 90 2001 2003 20052007 2009 2011 2013 Japan Korea China India ASEAN-4 EMDEs Latin America Eastern EU GDP per Capita (Percent of U.S. PPP per Capita) 0 10 20 30 40 50 60 70 80 90 2001 2003 2005 2007 2009 2011 2013 Japan Korea China India ASEAN-4 EMDEs Latin America Eastern EU Total Factor Productivity (At current PPPs; United States=1) Sources: Penn World Table 9.0; and IMF staff calculation Note: All TFPs are weighted by PPP; EMDEs for GDP include Bangladesh, Sri Lanka, Vietnam, Bhutan, Cambodia, Laos, Myanmar, Nepal, Fiji; ASEAN-4 include Indonesia, Malaysia, the Philippines, and Thailand; EMDEs for TFP include Sri Lanka, Laos, Fiji. There has been convergence in incomes with world leaders, but not much in productivity
- 20. Openness, human capital,and R&D are important for productivity 20 0.0 0.5 1.0 1.5 2.0 2.5 R&D Import Export Inward FDI Low (25th Percentile) High (75th Percentile) Estimated Impact on Sectoral Labor Productivity Growth (Percentage point) Sources: Financial Flows Analytics Database; and IMF staff calculations. Note: The 25th and 75th percentiles are calculated based on the R&D expenditure, import from U.S., export to U.S., and inward FDI for all sectors and countries.
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- 22. Policy recommendations 22 • Reinforcingthe growth momentum o The three-pronged approach (monetary, fiscal, and structural policies) remains appropriate o Asia needs to continue to build buffers in light of balance sheet weaknesses • Addressing near-term risks • Dealing with challenges from demographic transition and boosting productivity • Heterogeneous recommendations; the pickup provides opportunity to accelerate structural reforms
- 23. Near-term risks toAsia and policies to address them 23 Risks Policies Significant further strengthening of the US dollar and/or higher rates Strengthen macroprudential framework Exchange rate flexibility Disruptions to trade Preserving the gains from trade integration Continue multilateral cooperation
- 24. Critical to dealwith challenges from demographic transition and to boost productivity 24 • Structural reforms: labor markets and pension systems (country specific) • Macroeconomic policies should adapt early before aging sets in • How to raise productivity when external factors might not be as supportive as they were before?
- 25. Key messages androadmap 25 •The near-term outlook for the Asia-Pacific region remains robust—and globally the strongest. •While there are some upside risks to growth, the outlook, on balance, is clouded by significant downside risks. •Medium-term growth faces secular headwinds, including population aging and limited productivity convergence.